You pay $21,600 to a mutual fund, which has a NAV of $18 per share at the beginning of the year. The fund deducted a front-end load of 4%. The securities in the fund increased in value by 10% during the year and the fund's expense ratio is 1.3% during the year (deducted periodically from the fund). What is your rate of return on the fund if you sell your shares at the end of the year

Question

Kailey Barron

Business

7 January, 20:24

You pay $21,600 to a mutual fund, which has a NAV of $18 per share at the beginning of the year. The fund deducted a front-end load of 4%. The securities in the fund increased in value by 10% during the year and the fund's expense ratio is 1.3% during the year (deducted periodically from the fund). What is your rate of return on the fund if you sell your shares at the end of the year

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Cora Camacho · Answer 1

4.23%

Explanation:

For computing the rate of return on the fund, we need to do following calculations

1. The fund after deducting the front-end load is

= $21,600 - $21,600 * 4%

= $21,600 - $864

= $20,736

2. Now number of bought is

= $20,736 : $18 per share

= $1,152

3. The closed NAV is

= $18 + $18 * 10%

= $18 + $.8

= $19.8

4. So, the end year asset value is

= Closed NAV * number of shares bought

= $19.8 * 1,152

= $22,809.60

5. Now the year end investment value after considering the expense ratio is

= $22,809.60 * (1 - 1.3%)

= $22,513.0752

6. Now the rate of the return is

= ($22,513.0752 - $21,600) : ($21,600)

= 4.23%